Title Insurance, or Fifty Ways (not) to Lose Your Money

Yes, I've always kind of liked Paul Simon. But this post was inspired by something I ran across from FATCO. And just to make certain you know, it's fifty ways to lose your money if you don't have title insurance.

You don't want problems from prior ownerships to interfere with your rights to your property. And you don't want to pay the potentially ruinous cost of defending your property rights in court.

A title insurance policy is your best protection against potential title defects, which can remain hidden despite the most thorough search of public records and the most careful escrow or closing.

For a one-time premium, a title company agrees to reimburse you for loss due to defects existing prior to the issue date of your policy, up to the policy amount. And, should it be needed, the policy also provides for the cost of legal defense of your title. The standard coverage policy protects you against such potential defects as:

I'm going to star the ones I've got personal experience dealing with.

*Forged deeds, mortgages, satisfactions or releases.

*Deed by person who is insane or mentally incompetent.

Deed by minor (may be disavowed).

*Deed from corporation, unauthorized under corporate bylaws or given under falsified corporate resolution.

*Deed from partnership, unauthorized under partnership

agreement.

*Deed from purported trustee, unauthorized under trust agreement.

Deed to or from a "corporation" before incorporation, or after loss of corporate charter.

*Deed from a legal non-entity (styled, for example, as a church, charity or club).

*Deed by person in a foreign country, vulnerable to challenge as incompetent, unauthorized or defective under foreign laws.

*Claims resulting from use of "alias" or fictitious namestyle by a predecessor in title.

*Deed challenged as being given under fraud, undue influence or duress.

*Deed following non-judicial foreclosure, where required procedure was not followed.

*Deed affecting land in judicial proceedings (bankruptcy,

receivership, probate, conservatorship, dissolution of

marriage), unauthorized by court.

*Deed following judicial proceedings, subject to appeal or

further court order.

Deed following judicial proceedings, where all necessary

parties were not joined.

Lack of jurisdiction over persons or property in judicial

proceedings.

*Deed signed by mistake (grantor did not know what was

signed).

*Deed executed under falsified power of attorney.

*Deed executed under expired power or attorney (death, disability or insanity of principal).

Deed apparently valid, but actually delivered after death of

grantor or grantee, or without consent of grantor.

*Deed affecting property purported to be separate property of grantor, which is in fact community or jointly-owned

property.

Undisclosed divorce of one who conveys as sole heir of a

deceased former spouse.

*Deed affecting property of deceased person, not joining all

heirs.

Deed following administration of estate of missing person,

who later re-appears.

Conveyance by heir or survivor of a joint estate, who

murdered the decedent.

Conveyances and proceedings affecting rights of service-member protected by the Soldiers and Sailors Civil Relief Act.

Conveyance void as in violation of public policy (payment of gambling debt, payment for contract to commit crime, or conveyance made in restraint of trade).

*Deed to land including "wetlands" subject to public trust

(vesting title in government to protect public interest in navigation, commerce, fishing and recreation).

Deed from government entity, vulnerable to challenge as unauthorized or unlawful.

*Ineffective release of prior satisfied mortgage due to acquisition of note by bona fide purchaser (without notice of satisfaction).

*Ineffective release of prior satisfied mortgage due to bankruptcy of creditor prior to recording of release (avoiding powers in bankruptcy).

*Ineffective release of prior mortgage of lien, as fraudulently obtained by predecessor in title.

*Disputed release of prior mortgage or lien, as given under mistake or misunderstanding.

"Mechanics' lien" claims (securing payment of contractors and material suppliers for improvements) which may attach without recorded notice.

Federal estate or state inheritance tax liens (may attach without recorded notice).

Pre-existing violation of subdivision mapping laws.

*Pre-existing violation of zoning ordinances.

*Pre-existing violation of conditions, covenants and restrictions affecting the land.

Post-policy forgery against the insured interest.

*Forced removal of residential improvements due to lack of an appropriate building permit (subject to deductible).

Post-policy construction of improvements by a neighbor onto insured land.

Damage to residential structures from use of the surface of insured land for extraction or development of minerals.

Many people talk themselves out of title insurance, claiming it won't happen to them. They think they've just saved hundreds to a couple of thousand dollars. And they have, if none of the above things (as well as others) happens. But the reason you carry insurance to insure yourself against losses that you cannot afford. If you lose that bet, you've potentially lost the entire property, and many times this is precisely what happens. Mr. Jones owned the property for many years before he died, and his estate sold to Mr. Smith who lived in it for fifteen years and then sold it to you. But Mr. Jones had a quickie marriage before he went off to World War II, forgotten but never legally dealt with. That woman's son finds the marriage certificate and checks to see if Mr. Jones left any property. Guess what he finds. Guess who may really own "your" property?

If I am buying a property, I demand a policy of title insurance from the seller. If necessary, I will pay a second time to make certain there's a policy of title insurance covering me. This stuff happens.